KENTUCKY PARTNERSHIP INCOME AND LLET RETURN

Page 1 of 20

PURPOSE OF INSTRUCTIONS

These instructions have been designed for Kentucky

partnerships that afford their partners or members,

through function of the laws of this state or laws

recognized by this state, protection from general liability

for actions of the entity. These partnerships are required

by law to ﬁle a Kentucky Partnership Income and LLET

Return (Form 765). Form 765 is complementary to the

federal form 1065.

HOW TO OBTAIN ADDITIONAL FORMS

Forms and instructions are available at all Kentucky

Taxpayer Service Centers (see page 19). They may also

be obtained by writing FORMS, Department of Revenue,

P. O. Box 518, Frankfort, KY 40602–0518, or by calling

502–564–3658. Forms can be downloaded from

www.revenue.ky.gov.

KENTUCKY TAX LAW CHANGES

Enacted by the 2018 Regular Session of the General

Assembly—There are many amendments to Kentucky’s

tax code with most changes effective beginning in tax

year 2018. The Department of Revenue (“Department”)

has guidance online at https://TaxAnswers.ky.gov

and https://revenue.ky.gov/TaxProfessionals/Pages/

Guidance.

Tax Rate—For tax year 2018, a ﬂat income tax rate of

ﬁve percent (5%) was enacted for both corporations

and individuals.

Internal Revenue Code (IRC) Update—House Bill (HB)

487 updates the Internal Revenue Code (IRC) reference

date from December 31, 2015, to December 31, 2017,

including the adoption of many of the provisions of

the Federal Tax Cuts and Jobs Act (TCJA) for purposes

of computing income tax, except for depreciation

differences contained in KRS 141.0101.

Kentucky has adopted the following federal provisions:

• The eighty percent (80%) of taxable income limitation

for the net operating loss (NOL) deduction and an

unlimited carryforward of unused net operating

losses for NOL generated on or after 1/1/18

• Net interest expense deduction limitation

• Repeal of the Domestic Production Activity

Deduction

• Tax treatment of Foreign Derived Intangible Income

• Globally Intangible Low Taxed Income (see Kentucky

TAM 18-02)

Distinct Federal/State Differences:

• Kentucky continues to be decoupled from the federal

law for the depreciation deduction and IRC Section

179 expense deduction.

• Kentucky did not adopt the new federal twenty

percent (20%) deduction for Qualiﬁed Business

Income of Pass-through Entities.

Apportionment Changes for 2018:

The apportionment factor for assigning multi-state

income to Kentucky changed from a three (3)-factor

apportionment formula based on sales, property, and

payroll to a single-factor formula based on receipts.

This change is effective for taxable years beginning on

or after January 1, 2018. Note that “sales factor” refers

to the “receipts factor”.

Receipts from services and the sale of intangibles are

assigned to Kentucky under the single-factor formula if

the taxpayer’s market for the sales is in this state.

A three (3)-factor apportionment method is still

required for corporations in the business of providing:

• Communications service;

• Cable service; or

• Internet access.

Special apportionment provisions are retained for

passenger airlines and qualiﬁed air freight forwarders.

Tax Credit Changes:

• A new Inventory Tax Credit was created and is

effective January 1, 2018. It is a nonrefundable and

nontransferable credit against income and limited

liability entity taxes for tangible personal property

(ad valorem) tax timely paid on inventory. The credit

is phased-in as follows: 25% in 2018; 50% in 2019;

75% in 2020; and 100% in 2021 and thereafter.

• The refundable ﬁlm industry tax credit was changed

to a nonrefundable and nontransferable credit for

applications approved on or after April 27, 2018.

2018

765

Commonwealth of Kentucky

Department of Revenue

INSTRUCTIONS

KENTUCKY PARTNERSHIP

INCOME AND LLET RETURN

Page 2 of 20

INSTRUCTIONS

765

(2018)

• The Incentives for Energy Independence Act (IEIA)

ultimately will sunset on August 1, 2018 and no more

incentives under that program will be approved after

that date.

Tax Administration Changes:

• The time to protest an assessment or reduced refund

was increased from 45 to 60 days. This change is

applicable to notices of tax due or reduced refund

notices issued on or after July 1, 2018.

Kentucky Revised Statutes—Kentucky Revised Statutes

are referred to in these instructions as “KRS” and can be

found online at www.lrc.ky.gov/statutes.

Kentucky Administrative Regulations—Kentucky

Administrative Regulations are referred to in these

instructions as “KAR” and can be found online at

www.lrc.ky.gov/kar/titles.htm.

CURRENT YEAR INTEREST RATE

Pursuant to KRS 131.183, the 2019 tax interest rate has

been set at ﬁve percent (5%). The rate charged by the

Kentucky Department of Revenue on unpaid taxes is

seven percent (7%) and when interest is due on a refund,

the rate is three percent (3%).

KENTUCKY FORM CHANGES

New:

Schedule INV—Kentucky Inventory Tax Credit schedule

is new for taxable years beginning on or after January

1, 2018 and is used to calculate the Inventory Tax Credit

against income and LLE taxes for ad valorem (property)

taxes timely paid on inventory.

Updated:

Form 2220–K—This form is no longer required to be

attached to the return and is now a supporting worksheet

used to calculate the underpayment penalty and interest

due on late or underpaid estimated tax installment(s).

Schedule A—Part I, Lines 1 through 12 were separated

to distinguish the difference in computation of

apportionment fraction for all companies (Lines 1

through 3, single sales factor) and for Providers that

continue to use the three (3)-factor apportionment (Lines

1 through 12). For all other companies, Lines 4 through

12 must be completed for informational purposes. See

KRS 141.120 and KRS 141.121(1)(e).

Forms 720S, 720S(K), 765, 765(K), 765-GP, 765–

GP(K), and applicable Schedules K–1—Separated the

previous Apportionment Pass-through Items into two

sections to distinguish the differences in computing

the apportionment factor. The sections are now

labeled Apportionment for Pass-through Items and

Apportionment for Providers.

Schedule TCS—The Tax Credit Summary was updated to

add the Film Industry and Inventory tax credits.

Schedule RPC—This schedule has been shortened and

simpliﬁed. All previous questions are maintained, but

many have been combined or reformatted to reduce

confusion.

Schedule O–720 and Schedule O–PTE—Have been

shortened signiﬁcantly due to the elimination of

numerous deductions because of federal and Kentucky

tax law changes.

Discontinued:

• Schedule CI—Application for Coal Incentive Tax

Credit

• Schedule FD—Food Donation Tax Credit (2018 is

the ﬁnal year in which any unused prior year credit

carryforward may be utilized)

• Schedule HH—Kentucky Housing for Homeless

Families Deduction

• Schedule KESA—Kentucky Environmental Steward

ship Act Tax Credit

• Schedule KEOZ—Kentucky Economic Opportunity

Zone Tax Credit

• Form 8903-K—Kentucky Domestic Production

Activities Deduction

Page 3 of 20

INSTRUCTIONS

765

(2018)

The following list of filing tips is provided for your

convenience to help ensure that returns are processed

accurately and promptly. To avoid processing problems,

please note the following:

• Schedule COGS—If the company is computing its

LLET based on gross proﬁts, the new Schedule COGS,

Limited Liability Entity Tax Cost of Goods Sold, must be

attached to Form 765. Failure to include this schedule

may result in a tax adjustment and assessment.

• Account Closure—When ceasing operations and closing

an account, there are different requirements for the

Secretary of State and the Department of Revenue.

• Account Number/FEIN—Always ensure the correct

Kentucky Corporation/LLET account number and FEIN

is used on the return being ﬁled.

• Payments—Place payments on the front of the return

so they are clearly visible when the return is processed.

• Payments—Do not leave check stubs attached to checks

when sending in a payment. Check stubs delay the

machines that sort incoming mail, which causes longer

processing times.

• Estimated Payments—Make estimated payments on a

timely basis to avoid penalty and interest. When making

EFT payments online, use the Taxable Year Ending, NOT

the due date of the payment.

• Form 720V—Form 720V is a payment voucher for e-ﬁled

returns, NOT an extension form. To extend a ﬁling date,

use Form 720EXT, Extension of Time to File Kentucky

Corporation/LLET Return.

• Extensions—Extensions are for extending the ﬁling

date only; late payment penalties and interest apply to

payments made after the original due date.

• Corrected K-1’s—Adjustments to LLET or distributive

share require that corrected Kentucky K-1's are sent

to all partners, members, or shareholders for proper

compliance by taxpayers.

• Schedule A—Do not check the box on Schedule A,

Apportionment and Allocation, indicating the use of an

alternative allocation and apportionment formula if the

partnership has not received written approval from the

Department of Revenue. If written approval has been

received, a copy of the letter from the Department of

Revenue must be attached to the return when ﬁled.

• Additional errors that delay processing returns or

create adjustments include:

¡ Incorrect form submitted

¡ Incorrect tax exemption code

¡ Incomplete information

¡ Missing forms or schedules

¡ Incorrect taxable year end

¡ Tax Payment Summary Section of return blank or

incorrect

¡ Failure to include payment of tax due with the return

¡ Omitting Form 720EXT when paying with an

extension

Filing Tips and Checkpoints

Electronic Filing FAQs and Helpful Tips

• If your return is rejected for an invalid Kentucky Corporation/LLET Account Number or Federal Employer Identiﬁcation

Number (FEIN), please complete Form 20A100, “Declaration of Representative,” and contact our Registration Section

at 502-564-3306 for instructions on how to obtain an account number.

• Direct debit is an option for electronically ﬁled forms; however, direct deposit is not.

• If your e-ﬁled return has been REJECTED, DO NOT submit a 720V voucher at that time. You will get a NEW

720V voucher once you have successfully ﬁled an accepted Kentucky return. (Note: The Submission ID number will

change each time your return is sent to the Kentucky Department of Revenue.)

• To determine which forms are supported by your software, please check with the company that develops your

software.

More Options for Taxpayers Paying Online

The Department of Revenue (DOR) is now able to offer taxpayers additional payment options for Limited Liability Entity

Tax (LLET). Taxpayers can make a payment online for an e-ﬁled Partnership Income and LLET Return that would normally

be sent with a Form 720-V voucher. LLET payments for bills, estimates, and extensions can also be made using the

Enterprise Electronic Payment System (EEPS). To use EEPS, go to www.revenue.ky.gov and click on the E-File & Payments

tile. From the selections of tax types available, click “Limited Liability Entity Tax (LLET)” and select the Electronic Payment

link. To make payments, the FEIN is required along with the Kentucky Corporate/LLET 6-digit account number.

Page 4 of 20

INSTRUCTIONS

765

(2018)

IMPORTANT

Partnerships must create a Kentucky Form 4562, Schedule D and Form 4797 by converting federal forms.

Depreciation, Section 179 Deduction and Gains/Losses

From Disposition of Assets—For taxable years beginning

after December 31, 2001, Kentucky depreciation and IRC

§179

deduction are determined per the Internal Revenue Code in

effect on December 31, 2001. For calendar year 2018 returns

and ﬁscal year returns that begin in 2018, any partnership that

for federal purposes elects in the current taxable year or has

elected in past taxable years any of the following will have a

different depreciation and IRC

§179 expense deduction for

Kentucky:

• MACRS bonus depreciation; or

• IRC

§179 expense deduction in excess of $25,000.

If a partnership has taken MACRS bonus depreciation or IRC

§179 expense deduction in excess of $25,000 for any year,

federal and Kentucky differences will exist, and the differences

will continue through the life of the assets.

Important: If a partnership has not taken MACRS bonus

depreciation or the IRC

§179 expense deduction in excess

of $25,000 for any taxable year, then no adjustment will be

needed for Kentucky income tax purposes. If federal Form

4562 is required to be ﬁled for federal income tax purposes, a

copy must be submitted with Form 765 to substantiate that

no adjustment is required.

Determining and Reporting Depreciation and IRC

§179

Deduction Differences—federal/Kentucky depreciation or

IRC

§179 deduction differences must be reported as follows:

1. The depreciation from federal Form 1065, Line 16(a) must

be included on Form 765, Part I, Line 3. If federal Form 4562

is required to be ﬁled for federal income tax purposes, a

copy must be attached to Form 765.

2. Convert federal Form 4562 to a Kentucky form by entering

Kentucky at the top center of the form above Depreciation

and Amortization. Compute Kentucky depreciation and

IRC

§179 deduction per IRC in effect on December 31,

2001, by ignoring the lines and instructions regarding the

special depreciation allowance and the additional IRC

§179

deduction. NOTE: For Kentucky purposes, the maximum

IRC

§179 deduction amount on Line 1 is $25,000 and the

threshold cost of IRC

§179 property on Line 3 is $200,000.

The $25,000 maximum allowable IRC

§179 deduction for

Kentucky purposes is reduced dollar–for–dollar by the

amount by which the cost of qualifying IRC

§179 property

placed in service during the year exceeds $200,000. In

determining the IRC

§179 deduction for Kentucky, the

income limitation on Line 11 should be determined by using

Kentucky net income before the IRC

§179 deduction instead

of federal taxable income.

3. The partnership must attach the Kentucky Form 4562 to

Form 765, and the amount from Kentucky Form 4562, Line

22 less the IRC

§179 deduction on Line 12 must be included

on Form 765, Part I, Line 8. The IRC

§179 deduction from

the Kentucky Form 4562, Line 12 must be included on Form

765, Schedule K, Section A, Line 9. A Kentucky Form 4562

must be ﬁled for each year even though a federal Form

4562 may not be required.

Determining and Reporting Differences in Gain or Loss From

Disposition of Assets—If during the year the partnership

disposes of assets on which it has taken the special

depreciation allowance or the additional IRC

§179 deduction

for federal income tax purposes, the partnership will need to

determine and report the difference in the amount of gain or

loss on such assets as follows:

1. C onver t federal Schedule D (Form 1065) and other

applicable federal forms to Kentucky forms by entering

Kentucky at the top center of the form, and compute the

Kentucky capital gain or (loss) from the disposal of assets

using Kentucky basis. Enter the amount from Kentucky

Schedule D, Line 7 on Form 765, Schedule K, Section A,

Line 4(d) or 7. Enter the amount from Kentucky Schedule

D, Line 15 on Form 765, Schedule K, Section A, Line 4(e) or

7. Federal Schedule D (Form 1065) ﬁled with the federal

return and the Kentucky Schedule D must be attached to

Form 765.

2. If the amount reported on federal Form 1065, Line 6 (from

Form 4797, Line 17) is a gain, enter this amount on Schedule

O–PTE, Part II, Line 1. If the amount reported on federal

Form 1065, Line 6 (from Form 4797, Line 17) is a loss, enter

this amount on Schedule O–PTE, Part I, Line 1. Convert

federal Form 4797 and other applicable federal forms to

Kentucky forms by entering Kentucky at the top center of

the form, and compute the Kentucky gain or (loss) from

the sale of business property listing Kentucky basis. If the

amount on Kentucky Form 4797, Line 17 is a gain, enter this

amount on Schedule O–PTE, Part I, Line 2. If the amount

on Kentucky Form 4797, Line 17 is a loss, enter this amount

on Schedule O–PTE, Part II, Line 2. Federal Form 4797 ﬁled

with the federal return and the Kentucky Form 4797 must

be attached to Form 765.

Page 5 of 20

INSTRUCTIONS

765

(2018)

Tax Treatment of a Partnership (Afforded Limited Liability

Protection) and Partners or Members

For taxable years beginning on or after January 1, 2007, a

partnership that affords any of its partners or members, through

function of the laws of this state or laws recognized by this

state, protection from general liability for actions of the entity

is classiﬁed as limited liability pass–through entity per KRS

141.010(15). For taxable years beginning on or after January 1,

2007, an annual limited liability entity tax (LLET) must be paid

by every corporation and every limited liability pass–through

entity doing business in Kentucky on all Kentucky gross

receipts or Kentucky gross proﬁts per KRS 141.0401(2), unless

speciﬁcally excluded. See LLET Exemption Codes on page 8 of

these instructions.

In determining tax per KRS Chapter 141, a resident individual,

estate, or trust that is a partner or member of a partnership

classiﬁed as a limited liability pass–through entity must take

into account the partner’s or member’s total distributive share

of the partnership’s items of income, loss, and deduction. In

determining tax per KRS Chapter 141, a nonresident individual,

estate, or trust that is a partner or member of a partnership must

take into account the partner’s or member’s total distributive

share of the partnership’s items of income, loss, and deduction

multiplied by the apportionment fraction per KRS 141.206(11)(b).

KRS 141.206(7) and (8)

In determining tax per KRS Chapter 141, a corporation that is a

partner or member of a partnership must take into account its

total distributive share of the partnership’s items of income, loss,

and deduction. KRS 141.206(9)

The LLET credit allowed partners or members of a partnership

classiﬁed as a limited liability pass–through entity is the partners’

or members’ proportionate share of the LLET for the current year

after the subtraction of any credits identiﬁed in KRS 141.0205

and reduced by $175. The credit allowed partners or members

may be applied to the income tax assessed on income from the

partnership. Any remaining credit from the partnership will be

disallowed. KRS 141.0401(3)

GENERAL INFORMATION

Internal Revenue Code Reference Date—Kentucky’s Internal

Revenue Code (IRC) reference date is December 31, 2017,

including the provisions contained in Pub. L. No. 115-97,

exclusive of any amendments made subsequent to that date,

other than amendments that extend provisions in effect

on December 31, 2017, that would otherwise terminate, for

purposes of computing corporation and individual income tax,

except for depreciation differences per KRS 141.0101.

Kentucky Tax Registration Application—Prior to doing business in

Kentucky, each entity should complete a Kentucky Tax Registration

Application, Form 10A100, to register for a Kentucky Corporation/

LLET Account Number. This account number will be used for

remitting the corporation income tax per KRS 141.040 and LLET

per KRS 141.0401.

One Stop Business Services link.

1. Go to onestop.ky.gov .

2. Click on Begin Your Registration. Note: The One Stop

Business Services login page provides information for

creating a user account as well as portal security. You will

also ﬁnd overview information for the services the portal

currently provides. This information is updated regularly to

reﬂect new services and notify you when additional agencies

join the portal.

3. If you do not already have a One Stop user account, click on

the link labeled Click here to create one. Once a user account

has been created, an e-mail will be sent to you with further

instructions to activate the account and login.

4. Once logged in,

• If your business needs to register with both the Secretary

of State and the Department of Revenue or only needs

to register with the Department of Revenue, use the

and your Commonwealth Business Identiﬁer (CBI).

• If the business is already registered with the Secretary of

State and you do not already have access to the business

on your Dashboard, choose the Link My Business option.

Enter the Commonwealth Business Identiﬁer (CBI),

Security Token, and Business Name exactly as it appears

on your Kentucky articles of organization/incorporation,

your Kentucky Certiﬁcate of Authority, or your CBI letter

(including all punctuation) and link your business, click

Send Invite and follow the instructions sent to your email

to register for tax accounts.

The Link My Business option will require you to name at least

one “One-Stop Portal Business Administrator” (for example, the

business owner or representative).

Note: The administrator can then delegate access to

other individuals—for example, an attorney, accountant,

or manager. The administrator also determines the

appropriate authority level for delegates to make

changes—this could range from ﬁling annual reports

with the Secretary of State’s office, changing the

business address, or ﬁling and paying taxes. Only the

One Stop business administrator(s) can grant, approve,

withdraw, or revoke access to the business.

5. Once you have linked your business, your business name

and CBI number will appear in the My Businesses box on

the dashboard, click on the CBI number, once your business

loads, click on the Tax Administration tab to register for tax

accounts.

The paper application is available by calling the Department

of Revenue, Division of Registration and Data Integrity at

502–564–3306, or can be downloaded at www.revenue.ky.gov

(click on Form Search, and search for 10A100). The

application may be faxed to 502–227–0772 or e-mailed to

DOR.Registration@ky.gov

Page 6 of 20

INSTRUCTIONS

765

(2018)

Who Must File—LLET and Corporation Income Tax

LLET— The limitations imposed and protections provided by the

United States Constitution or Pub. L. No. 86–272 do not apply

to the limited liability entity tax imposed by KRS 141.0401. A

Kentucky Partnership Income and LLET Return (Form 765) must

be ﬁled by every partnership: (a) being organized under the laws

of this state; (b) having a commercial domicile in this state; (c)

owning or leasing property in this state; (d) having one or more

individuals performing services in this state; (e) maintaining an

interest in a pass–through entity doing business in this state;

(f) deriving income from or attributable to sources within this

state, including deriving income directly or indirectly from a

trust doing business in this state, or deriving income directly or

indirectly from a single member limited liability company that

is doing business in this state and is disregarded as an entity

separate from its single member for federal income tax purposes,

or (g) directing activities at Kentucky customers for the purpose

of selling them goods or services. KRS 141.010(7), KRS 141.040,

KRS 141.0401, and KRS 141.206

Disregarded Entities—A limited liability company (LLC) is treated

for Kentucky income tax purposes in the same manner as it is

treated for federal income tax purposes. Therefore, a single

member LLC that is disregarded for federal income tax purposes

should be included in the return ﬁled by its single member

(owner). KRS 141.010(7)

Pass-through Entities—A pass–through entity doing business in

Kentucky solely as a partner or member in a pass–through entity

will ﬁle Form 765 per KRS 141.010, KRS 141.120, and KRS 141.206.

(See Schedule A—Apportionment and Allocation Instructions.)

Nonresident Withholding and Composite return (Form 740NP-WH)

A partner or member that is an S corporation or partnership

is not subject to withholding. S corporations and partnerships

are pass-through entities per KRS 141.010(21).

KRS 141.206(4) provides that for taxable years beginning on

or after January 1, 2007, every pass–through entity required

to ﬁle a return under KRS 141.206(1), except publicly traded

partnerships deﬁned in KRS 141.0401(6)(r), must withhold

Kentucky income tax or file a composite return on the

distributive share, whether distributed or undistributed, of each

nonresident individual (includes an estate or trust) par tner,

member, or shareholder, or each C–corporation partner or

member that is doing business in Kentucky only through its

ownership interest in a pass–through entity. Withholding and

composite ﬁling is at the highest rate provided in KRS 141.020

or KRS 141.040.

Withholding is not required if: (a) the partner, member, or

shareholder is exempt from withholding per KRS 141.206(6)(a);

(b) the partner or member is exempt from Kentucky income tax

per KRS 141.040(1); (c) the pass-through entity is a qualiﬁed

investment partnership per KRS 141.206(14), and the partner,

member, or shareholder is an individual; or (d) the partner or

member is a pass-through entity.

For taxable years beginning on or after January 1, 2012, a

pass-through entity required to withhold or ﬁle a composite

return on Kentucky income tax per KRS 141.206 must make

estimated tax payments if required by KRS 141.206(5). If

the pass-through entity is required to make estimated tax

payments for taxable years beginning on or after January

1, 2012, use Form 740NP-WH-ES (Kentucky Estimated Tax

Voucher).

The reporting of a nonresident individual’s, estate’s, or trust’s

net distributive share income and withholding on Form

740NP–WH at the rate of ﬁve percent (5%) will satisfy the ﬁling

requirements of KRS 141.180 for a nonresident individual,

estate, or trust partner, member, or shareholder whose only

Kentucky source income is net distributive share income.

The partners’, members’, or shareholders’ distributive share

of income must include all items of income or deduction used

to compute adjusted gross income on the Kentucky return that

is passed through to the partner, member, or shareholder by

the pass–through entity, including but not limited to interest,

dividend, capital gains or losses, guaranteed payments, and

rents (KRS 141.206(15)). The nonresident individual, estate,

or trust partner, member, or shareholder may ﬁle a Kentucky

Individual Income Tax Return Nonresident or Part–Year

Resident (Form 740–NP) or a Kentucky Fiduciary Income

Tax Return (Form 741) to take advantage of the credits and

deductions.

A pass–through entity must ﬁle Form 740NP–WH and complete

a Form PTE–WH for each nonresident individual, estate, or

trust partner, member, or shareholder; or corporate partner

or member. Form 740NP–WH with Copy A of each Form PTE–

WH must be ﬁled and paid by the 15

day of the fourth month

following the close of the taxable period. Provide copies B and

C of Form PTE–WH to the partner, member, or shareholder.

Required Forms and Information—A partnership must enter all

applicable information on Form 765, attach a schedule for each

line item or line item instruction which states “attach schedule,”

and attach the following forms or schedules, if applicable:

Kentucky Forms and Schedules

1. Kentucky Partnership Income and LLET Return (Form 765)

2. Kentucky Partner’s Share of Income, Credits, Deductions,

Etc.—Schedule K–1 (Form 765)

3. Apportionment and Allocation (Schedule A)

4. Limited Liability Entity Tax—Continuation Sheet (Schedule

L–C)

5. Cost of Goods Sold (Schedule COGS)

6. Application for Filing Extension (Form 720EXT)

7. Tax Credit Summary Schedule (Schedule TCS)

8 Related Party Costs Disclosure Statement (Schedule RPC)

9. Other Additions And Subtractions To/From Federal Ordinary

Income (Schedule O–PTE)

Required Federal Forms and Schedules

All partnerships must provide a copy of the following federal

forms submitted to the Internal Revenue Service:

1. Form 1065, all pages.

2. Form 1125-A—Cost of Goods Sold

3. Form 4797—Sales of Business Property

4. Schedule D—Capital Gains and Losses

5. Form 5884—Work Opportunity Credit

Page 7 of 20

INSTRUCTIONS

765

(2018)

6. Schedules for items on Form 1065, Schedule L, which state,

“attach schedule.”

7. Form 4562—Depreciation and Amortization

8. Form 8825—Rental Real Estate Income and Expenses of a

Partnership or an S Corporation

Electronic Funds Transfer (EFT)—

The Department of Revenue

accepts electronically ﬁled Corporation Income Tax/Limited

Liability Entity Tax estimated tax voucher payments and

extension payments for corporation income tax and limited

liability entity tax. Before ﬁling by EFT, the partnership must have

a valid six-digit Kentucky Corporation/LLET Account Number

and have registered with the Department of Revenue to ﬁle

EFT. Using an incorrect account number, such as an account

number for withholding or sales and use tax, may result in the

payment being credited to another taxpayer’s account. When

making payments online, use the taxable year ending, NOT the

due date of the payment.

For more information contact the Department of Revenue at

800–839–4137 or 502–564–6020. The EFT registration form is

available at www.revenue.ky.gov.

Accounting Procedures—Kentucky income tax law requires a

partnership to report income on the same calendar or ﬁscal

year and to use the same methods of accounting required for

federal income tax purposes. Any federally approved change

in accounting periods or methods must be reported to the

Department of Revenue. Check the applicable box on page 1,

Item F and attach a copy of the federal approval to the return

when ﬁled. KRS 141.140

Mailing/Payment—If including payment for other taxes in

addition to LLET, send a separate check or money order for each

tax type.

Mail return to:

Kentucky Department of Revenue

P. O. Box 856910

Louisville, KY 40285-6910

Make the check(s) payable to Kentucky State Treasurer.

Mail returns with no tax due or refund requests to:

Kentucky Department of Revenue

P. O. Box 856905

Louisville, KY 40285-6905

Filing/Payment Date—A partnership return must be ﬁled and

payment must be made on or before the 15th day of the fourth

month following the close of the taxable year. KRS 141.160, KRS

141.220, and 103 KAR 15:050

If the ﬁling/payment date falls on a Saturday, Sunday, or a legal

holiday, the ﬁling/payment date is deemed to be on the next

business day. KRS 446.030(1)(a)

Extensions—A six-month extension of time to ﬁle a partnership

income and LLET return may be obtained by ﬁling Form 720EXT

or attaching a copy of the federal extension to the return when

ﬁled. A copy of the federal extension submitted after the return

is ﬁled does not constitute a valid extension, and late ﬁling

penalties will be assessed. If the partnership is making a payment

with its extension, Kentucky Form 720EXT must be used. For

further information, see the instructions for Form 720EXT. 103

KAR 15:050

NOTE: An extension of time to ﬁle a return does not extend the

date for payment of tax.

LLET Estimated Taxes

The Corporation Income/Limited Liability Entity Tax Estimated

Tax Voucher, Form 720-ES, is used to submit estimated tax

payments for LLET. See Electronic Funds Transfer (EFT). If

the partnership is required to make estimated LLET payments

and needs Form 720-ES vouchers, contact the Department of

Revenue at 502–564–3658.

Estimated Tax Payments—A partnership must make estimated

tax installments if its tax liability under KRS 141.0401 can

reasonably be expected to exceed $5,000. Estimated tax

installments are required as follows:

If the estimated tax is reasonably expected to exceed $5,000

before the 2nd day of the 6th month, 50% of the estimated tax

must be paid by the 15th day of the 6th month, 25% by the 15th

day of the 9th month, and 25% by the 15th day of the 12th month.

If the estimated tax is reasonably expected to exceed $5,000

after the 1st day of the 6th month and before the 2nd day of the

9th month, 75% of the estimated tax must be paid by the 15th

day of the 9th month, and 25% by the 15th day of the 12th month.

If the estimated tax is reasonably expected to exceed $5,000

after the 1st day of the 9th month, 100% of the estimated tax

must be paid by the 15th day of the 12th month.

Safe harbor: A partnership can satisfy its declaration requirement

if its current year estimated tax payments, including prior year

credit, are equal to the tax liability per KRS 141.0401 for the prior

tax year, and its tax liability for the prior tax year was equal to

or less than $25,000.

Interest: Failure to pay estimated tax installments on or

before the due date prescribed by KRS 141.044 will result in an

assessment of interest on the late payment or underpayment.

The interest due on any late payment or underpayment will

be at the rate provided by KRS 131.183(1). KRS 141.044 and

KRS 141.985

Penalty: Failure to pay estimated tax installments equal to the

amount determined by subtracting $5,000 from 70% of the tax

liability due per KRS 141.0401 as computed by the taxpayer on

the return ﬁled for the taxable year will result in an underpayment

penalty of 10% of the underpayment. The underpayment penalty

will not apply if the current year estimated tax payments,

including prior year credit, are equal to or greater than the tax

liability due per KRS 141.0401 for the previous taxable year, and

the tax liability due per KRS 141.0401 for the previous taxable

year was equal to or less than $25,000. KRS 131.180(3) and KRS

141.990(3)

Page 8 of 20

INSTRUCTIONS

765

(2018)

FORM 765—SPECIFIC INSTRUCTIONS

Item A—LLET Exemption Code

If the partnership is exempt from LLET, enter one of the

following two–digit codes in the space provided. Failure to

include a valid code will delay the processing of the tax return

and may result in a tax notice for assessment of taxes and

penalties.

Item B—Income Exemption Code

If the partnership is exempt from ﬁling a Kentucky partnership

income return, enter the following two-digit code in the space

provided. Failure to include a valid code will delay the processing

of the tax return and may result in a tax notice for assessment

of taxes and penalties.

Item C—Enter the number of partners (Attach K–1s).

Item D—Enter the partnership’s federal identiﬁcation number.

See federal Publication 583 if the partnership has not obtained

this number.

Item E—Enter the six-digit Kentucky Corporation/LLET Account

Number on the applicable line at the top of each form and

schedule and on all checks and correspondence. This number

was included in correspondence received from the Department

of Revenue at the time of registration.

Using an incorrect account number, such as an account number

for withholding or sales and use tax, may result in the payment

and/or return being credited to another taxpayer’s account.

If the Kentucky Corporation/LLET Account Number is not known,

complete Form 20A100, “Declaration of Representative,” and

contact Registration at 502–564–3306 for information on how

to obtain an account number.

Name and Address—Print or type the name of the partnership

as set forth in the Articles of Organization. For the address,

include the suite, room, or other unit number after the street

address. If the U.S. Postal Service does not deliver mail to the

REASON

CODE REASON

12 A property or facility which has been certiﬁed

as a ﬂuidized bed energy production facility as

deﬁned in KRS 211.390.

13 An alcohol production facility as deﬁned in KRS

247.910.

21 A qualiﬁed investment partnership as deﬁned in

KRS 141.206(14)(a).

REASON

CODE REASON

22 This return contains only the LLET as the

partnership is exempt from ﬁling a Kentucky

income return as provided by Public Law 86-272.

Other Information

Amended Return—To correct Form 765 as originally filed,

ﬁle an amended Form 765 and check the appropriate box on

page 1, Item F. If the amended return results in a change in income

or a change in the distribution of any income or other information

provided to partners, an amended Schedule K-1 (Form 765) must

also be ﬁled with the amended Form 765 and given to each

partner. Check the Amended K-1 box on each Schedule K-1 to

indicate that it is an amended Schedule K-1.

Internal Revenue Service Audit Adjustments—A partnership

which has received ﬁnal adjustments resulting from Internal

Revenue Service audits must submit copies of the “final

determinations of the federal audit” within 180 days of the

conclusion of the federal audits. Use Form 765 for reporting

federal audit adjustments, check the Amended Return box, and

attach the complete Revenue Agents Report (RAR).

Mail returns with federal audit adjustments (RAR) to:

Corporate Governmental Programs Section

P. O. Box 1074, Station 68

Frankfort, KY 40602-1074

Interest—Interest at the tax interest rate is applied to LLET

liability not paid by the date prescribed by law for ﬁling the

return (determined without regard to extensions thereof). See

page 1 for the current year rate.

Penalties

Failure to ﬁle a Kentucky Partnership Income and LLET Return

by the ﬁling date including extensions—2 percent of the LLET

due for each 30 days or fraction thereof that the return is late

(maximum 20 percent). The minimum penalty is $10. KRS

131.180 (1)

Failure to pay LLET by the payment date—2 percent of the LLET

due for each 30 days or fraction thereof that the payment is

overdue (maximum 20 percent). The minimum penalty is $10.

KRS 131.180(2)

Late payment or underpayment of estimated tax penalty—10

percent penalty of the late payment or underpayment. The

minimum penalty is $25. K RS 131.18 0 (3 )

Failure or refusal to ﬁle a Kentucky Income and LLET Return

or furnish information requested in writing—5 percent of the

tax assessed for each 30 days or fraction thereof that the return

is not ﬁled or the information is not submitted (maximum 50

percent). The minimum penalty is $100. KRS 131.180 (4 )

Negligence—10 percent of the tax assessed. KRS 131.180(7)

Fraud—50 percent of the tax assessed. KRS 131.180(8)

Cost of Collection Fees—25 percent on all taxes which become

due and owing for any reporting period, regardless of when

due. These collection fees are in addition to all other penalties

provided by law. KRS 131.440(1)(b)

Records Retention—The Department of Revenue deems

acceptable virtually any records retention system which results

in an essentially unalterable method of records storage and

retrieval, provided: (a) authorized Department of Revenue

personnel are granted access, including any specialized

equipment; (b) taxpayer maintains adequate back-up; and

system is accurate and complete.

Page 9 of 20

INSTRUCTIONS

765

(2018)

street address and the partnership has a P.O. Box, show the

box number instead of the street address.

Change of Name—Check the applicable box if the partnership’s

name has changed since the ﬁling of the prior year Kentucky

tax return. Attach a statement to the tax return providing the

partnership’s name reﬂected on the prior year Kentucky tax

return.

Telephone Number—Enter the business telephone number of

the partner or member signing the return.

Period Covered—File the 2018 return for calendar year 2018 and

ﬁscal years that begin in 2018. For a ﬁscal year, ﬁll in the taxable

period beginning and ending at the top of Form 765.

NOTE: For 52/53 week ﬁlers, ﬁll in the taxable period beginning

and ending dates as speciﬁed below:

• Begin on the ﬁrst day of the calendar month beginning nearest

to the ﬁrst day of the 52/53-week tax year.

• End on the last day of the calendar month ending nearest to

the last day of the 52/53-week tax year.

All partnerships must enter Taxable Year Ending at the top right

of Form 765 and supporting forms and schedules to indicate the

ending month and year for which the return is ﬁled.

• A calendar year is a period from January 1 through

December 31 each year. This would be entered as:

• A ﬁscal year is 12 consecutive months ending on the last day

of any month except December. A ﬁscal year ending January

31, 2019, would be entered as:

• A 52/53-week year is a ﬁscal year that varies between 52 and

53 weeks. Example: A 52/53-week year ending the ﬁrst week

of the month would be entered as the month and year of the

prior month. If it ends the ﬁrst week of January 2019, the

taxable year ending would be entered as:

Failure to properly reﬂect the Taxable Year Ending may result

in delinquency notices or billings for failure to ﬁle.

State and Date of Organization—Enter the entity’s state and

date of organization.

Principal Business Activity in Kentucky—Enter the entity’s

principal business activity in Kentucky.

North American Industrial Classiﬁcation System (NAICS)—

Enter your six-digit NAICS code. To view a complete listing of

__ __ / __ __

MM YY

1 2

1 8

__ __ / __ __

MM YY

0 1

__ __ / __ __

MM YY

1 2

1 8

NAICS codes, visit the Census Bureau at www.census.gov/

eos/www/naics.

Item F—Check the applicable boxes:

(a) LLC—The partnership is organized as a limited liability

company (LLC).

(b) LP—The partnership is organized as a limited partnership

(LP).

partnership (LLP).

(d) Initial Return—This is the partnership’s ﬁrst time ﬁling a

partnership return in Kentucky. Complete questions 1 and

2 on Schedule Q–Kentucky Partnership Questionnaire.

(e) Change of Accounting Period—The partnership has

changed its accounting period since it ﬁled its prior year

Kentucky tax return. Attach a statement to the tax return

showing the partnership’s taxable year end before the

change and its new taxable year end. If the partnership

received written approval from the Internal Revenue

Service to change its taxable year, attach a copy of the

letter.

(f) Qualiﬁed Investment Partnership—The partnership is a

qualiﬁed investment partnership per KRS 141.206(14)(a).

(g) Final Return—This is the partnership’s ﬁnal Kentucky tax

return. Check the appropriate box in Part III – Explanation

of Final Return and/or Short-Period Return.

(h) Short-period Return—This return is for a period of less than

one year and not an initial return or ﬁnal return. Check the

appropriate box in Part III – Explanation of Final Return and/

or Short-Period Return.

(i) Amended Return—This is an amended tax return. Provide

an explanation of all changes in Part IV – Explanation of

Amended Return Changes.

Item G—Provider 3-Factor Apportionment Code

If the entity is a provider as deﬁned in KRS 141.121(1)(e), enter

one of the following two-digit codes in the space provided. The

apportionment fraction for a provider continues to be calculated

using a three (3)- factor formula as provided in KRS 141.901 for

tax years beginning on or after January 1, 2018.

Failure to include a valid code will delay the processing of the

tax return and may result in a tax notice for assessment of taxes

and penalties.

REASON

CODE

PROVIDER BUSINESS

31 Communications service as deﬁned in KRS 136.602;

32 Cable service as deﬁned in KRS 136.602;

33 Internet service as deﬁned in 47 U.S.C. sec. 151; or

34 Other (attach statement)

Page 10 of 20

INSTRUCTIONS

765

(2018)

PART I—ORDINARY INCOME (LOSS) COMPUTATION

Line 1—Enter the amount from federal Form 1065, Line 22,

ordinary business income (loss) from trade or business activities.

Attach Form 1065, all pages.

Additions to Federal Ordinary Income—Lines 2 through 5 specify

additional income or unallowed deductions which are differences

between federal ordinary income and Kentucky ordinary income.

Line 2—Enter state taxes measured in whole or in part by

gross or net income. “State” means any state of the United

States, the District of Columbia, the Commonwealth of Puerto

Rico, any territory or possession of the United States or any

foreign country or political subdivision thereof. Attach a

schedule reﬂecting the total taxes deducted on Form 1065.

KRS 141.039(2)(c)

Line 3—See instructions on page 4 regarding depreciation and

IRC

§179 deduction differences, and if applicable, include the

depreciation amount from Line 16a of Form 1065 (do not include

the IRC

§179 deduction). If federal Form 4562 is required to be

ﬁled for federal income tax purposes, a copy must be attached.

Line 4—Enter related party cost additions from Schedule RPC,

Part II, Section B, Line 1.

Line 5—Enter the amount from Schedule O–PTE, Part I, Line 7.

Line 6—Enter the total of Lines 1 through 5.

Subtractions from Federal Ordinary Income—Lines 7 through

9 specify additional deductions allowed which are differences

between federal ordinary income and Kentucky ordinary income.

Line 7—Enter the amount of the work opportunity credit reﬂected

on federal Form 5884. For Kentucky purposes, the partnership

may deduct the total amount of salaries and wages paid or

incurred for the taxable year. This adjustment does not apply

for other federal tax credits.

Line 8—Enter Kentucky depreciation (do not include IRC

§179

deduction). See instructions on page 4 regarding depreciation

and IRC

§179 deduction differences, and if applicable, Kentucky

converted Form 4562 must be attached.

Line 9—Enter the amount from Schedule O-PTE, Part II, Line 7.

Line 10—Subtract Lines 7, 8, and 9 from Line 6.

PART II—LLET COMPUTATION

Line 1—Enter the amount from Schedule L, Section D, Line 1.

Line 2—Enter the sum of all recapture amounts from Schedule

RC–R, Line 12, Form 8874(K)-B, Line 3, and/or Schedule DS,

page 2, Line 10. Attach Schedule RC–R, Form 8874(K)-B, and/

or Schedule DS.

Line 3—Enter the total of Lines 1 and 2.

Line 4—Enter the nonrefundable LLET credit from Kentucky

Schedule(s) K-1. Copies of Kentucky Schedule(s) K–1 must be

attached to the tax return in order to claim the credit.

Line 5—Enter the total tax credits from Schedule TCS, Part III,

Column E, Line 1 (attach Schedule TCS).

Line 6—Enter the greater of Line 3 less Lines 4 and 5, or $175.

Line 7—Enter the total estimated LLET payments made for

the taxable year. Do not include the amount credited from the

prior year.

Line 8—Enter the refundable Certiﬁed Rehabilitation Tax Credit

(attach the Kentucky Heritage Council certiﬁcation(s) or Kentucky

Schedule(s) K–1 Form 765-GP).

Line 9—Enter the refundable Film Industry Tax Credit (attach the

Kentucky Film Ofﬁce certiﬁcation(s)) or Kentucky Schedule(s)

K-1 Form 765-GP.

NOTE: For applications approved prior to April 27, 2018 this credit

is refundable and should be entered here. For applications

approved on or after April 27, 2018, this credit is nonrefundable

and should be entered on Schedule TCS.

Line 10—Enter the amount of LLET paid with Form 720EXT,

Extension of Time to File Kentucky Corporation/LLET Return.

Line 11—Enter the amount credited to 2018 from Form 765, Part

II, Line 18 of the 2017 tax return.

Line 12—Enter the LLET paid on the original return. This line is

used when ﬁling an amended return.

Line 13—Enter the LLET overpayment on the original return. This

line is used when ﬁling an amended return.

Line 14—If the total of Lines 6 and 13 is greater than the total of

Lines 7 through 12,

enter the difference on this line and enter

the amount on Line 1 of the LLET

Payment Summary.

Line 15—If the total of Lines 6 and 13 is less than the total of

Lines 7 through 12, enter the difference on this line.

Line 16—Enter the portion of Line 15 to be credited to 2018 LLET

interest due.

Line 17—Enter the portion of Line 15 to be credited to 2018 LLET

penalty due.

Line 18—Enter the portion of Line 15 to be credited to 2019 LLET.

Line 19—Enter the portion of Line 15 to be refunded (Line 15 less

Lines 16 through 18).

Tax Payment Summary

The payment due with Form 765 must be itemized. Enter the

LLET payment due from page 1, Part II, Line 14 on the applicable

tax payment line in addition to the respective amount of interest

and penalty. Enter the total payment due on the Total Payment

line.

SCHEDULE Q—Answer all applicable questions on Schedule Q.

The Kentucky Secretary of State Organization number can be

found online at www.sos.ky.gov. This is not the same number

as the Corporation/LLET Account Number reported in Item E

on page 1.

SCHEDULE K (FORM 765)

General Instructions—Complete all applicable lines by entering

the total pro rata share amount for each item listed. Federal

instructions for Form 1065 and federal Schedule K provide

additional information which will assist the partnership in

completing Schedule K, Form 765.

Page 11 of 20

INSTRUCTIONS

765

(2018)

A partnership must use Form 765(K), Kentucky Schedule K

For Partnerships With Economic Development Project(s), if

the partnership has one or more projects under the Kentucky

Rural Economic Development Act (KREDA), Kentucky Industrial

Development Act (KIDA), Kentucky Jobs Retention Agreement

(KJRA), Kentucky Industrial Revitalization Act (KIRA), Kentucky

Jobs Development Act (KJDA), Kentucky Business Investment

Program (KBI), Kentucky Reinvestment Act (KRA), Incentives

for Energy Independence Act (IEIA), or Farming Operation

Networking Project (FON).

Section A—Income (Loss) and Deductions

Line 1—Enter Kentucky ordinary income (loss) from trade or

business activities reported on Form 765, Part I, Line 10.

Line 2—Enter net income (loss) from rental real estate activities

reported on federal Schedule K, Form 1065, adjusted to reﬂect

any differences in Kentucky and federal income tax laws.

Line 3(a)—Enter the gross income from other rental activities

reported on federal Schedule K, Form 1065.

Line 3(b)—Enter the expenses from other rental activities

reported on federal Schedule K, Form 1065, adjusted to reﬂect

any differences in Kentucky and federal income tax laws.

Line 3(c)—Enter the difference of Line 3(a) and Line 3(b).

Line 4(a)—Enter interest income from federal Schedule K, Form

1065, adjusted to exclude tax-exempt U.S. government interest,

if any, and to include interest income from obligations of states

other than Kentucky and their political subdivisions.

Lines 4(b) and 4(c)—Enter the amount of dividend and royalty

income reported on federal Schedule K, Form 1065.

Line 4(d)—

See instructions on page 4 regarding differences

in gain or loss from disposition of assets, and if applicable,

enter the amount from Line 7 of the Kentucky Schedule D that

is portfolio income. Report any gain or loss that is not portfolio

income on Line 7, Schedule K, Form 765. Kentucky Schedule

D must be attached to Form 765. Otherwise, enter the amount

from Line 7 of the federal Schedule D (Form 1065) that is

portfolio income.

Line 4(e)—See instructions on page 4 regarding differences

in gain or loss from disposition of assets, and if applicable,

enter the amount from Line 15 of the Kentucky Schedule D

that is portfolio income. Report any gain or loss that is not

portfolio income on Line 7, Schedule K, Form 765. Kentucky

Schedule D must be attached to Form 765. Otherwise, enter

the amount from Line 15 of the federal Schedule D (Form 1065)

that is portfolio income.

Line 4(f)—Enter any other portfolio income not reported on

Lines 4(a) through 4(e), Schedule K, Form 765.

Line 5—Enter guaranteed payments to partners from federal

Schedule K, Form 1065.

Line 6—See instructions on page 4 regarding differences in

gain or loss from disposition of assets. If applicable, enter the

amount from Line 7 of the Kentucky Form 4797, and Kentucky

Form 4797 must be attached to Form 765. Otherwise, enter

net gain (loss) under IRC

§1231 from federal Form 4797. Do not

include net gains (losses) from involuntary conversions due to

casualties or thefts on this line. Instead, report them on Line 7.

Line 7—Enter all other items of income (loss) of the partnership

not included on Lines 1 through 6. See federal instructions for

Schedule K, Form 1065.

Line 8—Enter total contributions paid by the partnership during

its taxable year and attach a schedule showing separately

the contributions subject to the 50 percent, 30 percent and

20 percent limitations. These percentage limitations must

be applied to the Kentucky amounts rather than the federal

amounts.

Line 9—See instructions on page 4 regarding depreciation and

IRC §179 deduction differences, and if applicable, include the

amount from Line 12 of the Kentucky Form 4562. Kentucky Form

4562 must be attached. Otherwise, enter IRC §179 deduction

from federal Form 4562.

Line 10—Enter the expenses related to portfolio income

reported on federal Schedule K, Form 1065, adjusted to exclude

expenses related to tax–exempt interest income and other

exempt income.

Line 11—Enter any other deductions of the partnership not

included on Lines 8, 9, and 10. See federal instructions for

Schedule K, Form 1065.

Line 12(a)—Enter the partnership’s deductible interest expense

allocable to debt on property held for investment purposes.

Property held for investment purposes includes property that

produces investment income (interest, dividends, annuities,

royalties, etc.). The total amount entered should equal the

amount of interest expense reported on federal Schedule K,

Form 1065, adjusted to exclude any interest expense on debts

incurred to purchase or carry investment property producing,

or held for the production of, U.S. government interest income.

Lines 12(b)(1) and (b)(2)—Enter only the investment income

included on Lines 4(a), 4(b), 4(c), and 4(f), Schedule K, Form

765, and only the investment expenses included on Line 10,

Schedule K, Form 765. See federal instructions for Schedule

K, Form 1065.

Line 13—Use the following codes for tax credits passed through

to the partnership’s owners.

KSBTC—Kentucky Small Business tax credit per KRS 141.384;

attach a copy of the Kentucky Economic Development Finance

Authority notiﬁcation

STICA—Skills Training Investment Credit Act tax credit per KRS

141.405; attach copy of the Bluegrass State Skills Corporation

certiﬁcation(s)

CR—Certiﬁed Rehabilitation tax credit per KRS 171.397; attach

a copy of the Kentucky Heritage Council certiﬁcation(s)

UTC—Kentucky Unemployment tax credit per KRS 141.065;

attach Schedule UTC

RC—Recycling/Composting Equipment tax credit per KRS

141.390; attach Schedule RC

KIFA—Kentucky Investment Fund tax credit per KRS 154.20-258;

attach a copy of the Kentucky Economic Development Finance

Authority notiﬁcation with the credit amount granted and the

ﬁrst year the credit may be claimed

QR—Qualiﬁed Research facility tax credit per KRS 141.395;

attach Schedule QR

Page 12 of 20

INSTRUCTIONS

765

(2018)

GED—GED incentive tax credit per KRS 164.0062; attach

GED-Incentive Program Final Report (Form DAEL-31) for each

employee that completed a learning contract during the year

VERB—Voluntary Environmental Remediation tax credit per

KRS 141.418; attach Schedule VERB

BIO—Biodiesel tax credit per KRS 141.424; attach Schedule BIO

CCI—Clean Coal Initiative tax credit per KRS 141.428; attach

Schedule CCI

ETH—Ethanol tax credit per KRS 141.4242; attach Schedule ETH

CELL—Cellulosic Ethanol tax credit per KRS 141.4244; attach

Schedule CELL

RR–I—Railroad Maintenance and Improvement tax credit per

KRS 141.385; attach Schedule RR-I

RR–E—Railroad Expansion tax credit per KRS 141.386; attach

Schedule RR-R

ENDOW—ENDOW Kentucky tax credit per KRS 141.438; attach

Schedule ENDOW

NMDP—New Markets Development Program tax credit per KRS

141.434; attach Form 8874(K)-A

DS—Distilled Spirits tax credit per KRS 141.389; attach Schedule

INV—Inventory tax credit per KRS 141.408; attach Schedule INV.

Line 14(a)—Enter the information provided on federal

Schedule K, Form 1065, Line 13c(1).

Line 14(b)—Enter the amount reported on federal Schedule K,

Form 1065, Line 13c(2).

Line 15—Enter the total amount of interest income of the

partnership from U.S. government bonds and securities and

obligations of Kentucky and its political subdivisions.

Line 16—Enter the total amount of any other type of income

of the partnership where the partner is exempt from Kentucky

income tax.

Line 17—Enter the total amount of nondeductible expenses

paid or incurred by the partnership including, but not limited to,

state taxes measured by gross/net income, expenses related to

tax–exempt income, etc. Do not include a deduction reported

elsewhere on Schedule K, Form 765, capital expenditures, or

items the deductions for which are deferred to a later year.

Line 18—Enter the amount reported on federal Schedule K,

Form 1065, Line 19a and 19b, adjusted to reﬂect any differences

in Kentucky and federal tax laws, such as depreciation.

Line 19—

Attach schedules to report the partnership’s total

income, expenses, and other information applicable to items not

included on Lines 1 through 12 and Lines 14 through 19 including,

but not limited to, any recapture of IRC

179 deduction, gross

income, and other information relating to oil and gas well

properties enabling the partnership to ﬁgure the allowable

depletion deduction, and any other information the partners

need to prepare their Kentucky income tax returns. See federal

instructions for Schedule K, Form 1065, Line 13d.

SECTION B—LLET Pass-through Items (Required)

Line 1—Enter the partnership’s Kentucky gross receipts from

Schedule L, Section A, Column A, Line 2.

Line 2—Enter the partnership’s total gross receipts from

Schedule L, Section A, Column B, Line 2.

Line 3—Enter the partnership’s Kentucky gross proﬁts from

Schedule L, Section A, Column A, Line 5.

Line 4—Enter the partnership’s total gross proﬁts from Schedule

L, Section A, Column B, Line 5.

Line 5—Enter the limited liability entity tax (LLET) nonrefundable

credit from page 1, Part II, the total of Lines 4 and 6, less $175.

SECTION C—Apportionment Pass–through Items (if applicable)

Line 1—Enter the partnership’s Kentucky sales from Schedule

A, Part I, Line 1.

Line 2—Enter the partnership’s total sales from Schedule A,

Part I, Line 2.

Section D—Apportionment for Providers (KRS 141.121(1)(e))

Line 1—Enter the partnership’s Kentucky property from

Schedule A, Part I, Line 5.

Line 2—Enter the partnership’s total property from Schedule

A, Part I, Line 6.

Line 3—Enter the partnership’s Kentucky payroll from Schedule

A, Part I, Line 8.

Line 4—Enter the partnership’s total payroll from Schedule A,

Part I, Line 9.

SCHEDULE L—LIMITED LIABILITY ENTITY TAX COMPUTATION

Purpose of Schedule—Schedule L, Limited Liability Entity Tax

Computation, is used to compute the limited liability entity

tax (LLET) per KRS 141.0401(2). If the partnership ﬁling the

tax return is a partner or member of a limited liability pass-

through entity or general partnership (organized or formed as

a general partnership after January 1, 2006) doing business

in Kentucky, complete Schedule L-C, Limited Liability Entity

Tax—Continuation Sheet.

Short-Period Computation of LLET— For short-period returns,

annualizing gross receipts or gross proﬁts is not permitted. A

minimum of $175 is due per taxable year. Taxable year is deﬁned

as the period for which the return is made. KRS 141.010(28)

Section A of this schedule must be completed by the partnership,

except a partnership exempt from LLET per KRS 141.0401(6). If

the partnership ﬁling the tax return is a partner or member of

a limited liability pass-through entity or general partnership

doing business in Kentucky, complete Schedule L-C, Limited

Liability Entity Tax—Continuation Sheet. Kentucky gross receipts,

Kentucky gross proﬁts, total gross receipts from all sources, and

total gross proﬁts from all sources must be completed per KRS

141.0401(1). See the line-by-line instructions below.

Section B of this form must be completed to compute the LLET

on Kentucky gross receipts.

Page 13 of 20

INSTRUCTIONS

765

(2018)

Section C of this form must be completed to compute the LLET

on Kentucky gross proﬁts.

Section D of this form must be completed to show the LLET

liability before the application of any tax credits.

LINE-BY-LINE INSTRUCTIONS

Check Box—If the entity is required to attach Schedule L-C, check

the box.

Section A—Computation of Gross Receipts and Gross Proﬁts

If the partnership ﬁling the tax return is a partner or member

of a limited liability pass-through entity or general partnership

doing business in Kentucky, complete Schedule L-C and enter

the total amounts from Schedule L-C, Section A, Lines 2 and 5

on Schedule L, Section A, Column A, Lines 2 and 5; and the total

amounts from Schedule L-C, Section B, Lines 2 and 5 on Schedule

L, Section A, Column B, Lines 2 and 5, and continue to Schedule

L, Sections B, C, and D unless the amount in Section A, Column

B, Line 2 is $3,000,000 or less (see form).

Line 1(a)—Enter Kentucky gross receipts less returns and

allowances in Column A and Total gross receipts less returns

and allowances in Column B. Gross receipts includes but is not

limited to sales, rent, proceeds from the sale of real and tangible

personal property, interest, and dividends.

Line 1(b)—Enter Kentucky gross receipts allocable to a “qualiﬁed

exempt organization” deﬁned in KRS 141.0401(7).

Line 3(a)—Enter the Kentucky cost of goods sold and total

cost of goods sold from Schedule COGS, Columns A and B,

Line 8. For an entity other than manufacturing, producing,

reselling, retailing, or wholesaling, no costs can be claimed.

KRS 141.0401(1)(d)

Line 3(b)—Enter the Kentucky cost of goods sold associated with

the gross receipts allocable to a “qualiﬁed exempt organization”

deﬁned in KRS 141.0401(7).

Section B—Computation of Gross Receipts LLET

Line 1—If gross receipts from all sources (Column B, Line 2)

are greater than $3,000,000, but less than $6,000,000, enter the

following: (Column A, Line 2 x 0.00095) – ($2,850 x (($6,000,000

– Column A, Line 2) / $3,000,000)), but in no case shall the result

be less than zero.

Line 2—If gross receipts from all sources (Column B, Line 2) are

$6,000,000 or greater, enter the following: Column A, Line 2 x

0.00095.

Line 3—Enter the amount from Line 1 or Line 2.

Section C—Computation of Gross Proﬁts LLET

Line 1—If gross proﬁts from all sources (Column B, Line 5) are

greater than $3,000,000, but less than $6,000,000, enter the

following: (Column A, Line 5 x 0.0075) – ($22,500 x (($6,000,000

– Column A, Line 5) / $3,000,000)), but in no case shall the result

be less than zero.

Line 2—If gross proﬁts from all sources (Column B, Line 5) are

$6,000,000 or greater, enter the following: Column A, Line 5 x

0.0075.

Line 3—Enter the amount from Line 1 or Line 2.

Section D—Computation of LLET

Line 1—Enter the lesser of Section B, Line 3 or Section C, Line 3.

If less than $175, enter the minimum of $175 here and on page

1, Part II, Line 1.

Signature—Form 765 must be signed by a partner or

member. Failure by a partner or member to sign the

return, to complete all applicable lines on any required

Kentucky form, to attach all applicable schedules, including

copies of federal forms, or to complete all information on the

questionnaire will delay the processing of tax returns.

SCHEDULE K–1 (FORM 765)—KENTUCKY PARTNER’S

SHARE OF INCOME, CREDITS, DEDUCTIONS, ETC.

General Instructions

Schedule K–1 (Form 765) shows each partner’s pro rata share

of the partnership’s income, deductions, credits, etc. On

each Schedule K–1 (Form 765), enter the names, addresses,

and identifying numbers of the partner and partnership and

complete items A, B, C, D, E, and F. All partners’ names, Social

Security or identifying numbers, and other partner information

must be complete and legible. Schedule K–1 (Form 765) must

be completed and given to each partner with instructions on or

before the day on which Form 765 is ﬁled with the Department

of Revenue.

A copy of each partner’s K–1 (Form 765) must be attached to

Form 765 ﬁled with the Department of Revenue and a copy kept

as part of the partnership’s records.

Speciﬁc Instructions

Federal instructions for Schedule K–1 (Form 1065) explain the

rules for allocating items of income (loss), deductions, credits,

etc., to each partner. The distributive share items reported on

all Kentucky Schedules K-1, Lines 1 through 19 must equal the

amounts reported on Kentucky Schedule K, Lines 1 through

19. The distributive share items reported on all Schedules

K–1, Sections B, C, and D must equal the amounts reported on

comparable lines of Schedule K, Sections B, C, and D. Schedule

K–1, Section E does not correspond with Schedule K.

Multiple Activities—If items of income, loss or deduction

from more than one activity are reported on Lines 1, 2, or 3

of Schedule K–1 (Form 765), the partnership must provide

information for each activity to its partners. See Passive Activity

Reporting Requirements in the instructions for Schedule K–1

(Form 1065) for details on the information to be provided on

an attachment to Schedule K–1 (Form 765) for each activity.

At–Risk Activities—If the partnership is involved in one or

more at–risk activities for which a loss is reported on Schedule

K–1 (Form 765), the partnership must report information

separately for each at–risk activity. See Special Reporting

Requirements for At–Risk Activities in the federal instructions

for Schedule K–1 (Form 1065) for details on the information to

be provided on an attachment to Schedule K–1 (Form 765) for

each at-risk activity.

Sections A, B, C, and D—Enter the partner’s total pro rata share

of each item listed on Schedule K, Form 765. Do not multiply

these amounts by the percentage entered on Item D(2).

Attach schedules showing separately the required information

for each IRC §469 passive activity and each IRC §465 at-risk

activity. Other schedules are to be attached for line items where

requested on Schedule K–1 (Form 765).

Page 14 of 20

INSTRUCTIONS

765

(2018)

Enter on attached schedules the supplemental information

required to be reported separately to each partner for Lines 1

through 19 and any other information or items and amounts

not included on Schedule K–1 (Form 765) for which the partner

needs to prepare a Kentucky income tax return including, but

not limited to, any recapture of IRC §179 deduction, gross

income, and other information relating to oil and gas well

properties enabling the partner to ﬁgure the allowable depletion

deduction, etc. See instructions for federal Schedule K–1 (Form

1065), Line 20.

Page 15 of 20

TAX CREDIT SUMMARY

765

(2018)

Schedule TCS is used by partnerships to apply tax credits for entities subject to the limited liability entity tax (LLET) imposed by KRS

141.0401. Taxpayer as used in this section refers to the partnership.

Economic Development Tax Credits

—This section is completed

only if a limited liability pass-through entity has been approved

for one or more of the credits authorized by the: (1) Metropolitan

College Consortium Tax Credit (MCC – KRS 141.381); (2) Kentucky

Small Business Tax Credit Program (KSBTC – KRS 141.384); or

(3) Skills Training Investment Credit Act (STICA – KRS 154.12).

A limited liability pass-through entity must not enter income or

LLET tax credits on Schedule TCS from:

• Kentucky Rural Economic Development Act (KREDA – KRS

154.22)

• Kentucky Industrial Development Act (KIDA – KRS 154.28)

• Kentucky Jobs Retention Agreement (KJRA – KRS 154.25)

• Kentucky Industrial Revitalization Act (KIRA – KRS 154.26)

• Kentucky Jobs Development Act (KJDA – KRS 154.24)

• Kentucky Business Investment Program (KBI – KRS 154.32)

• Kentucky Reinvestment Act (KRA – KRS 154.34)

• Incentives for Energy Independence Act (IEIA – KRS 154.27)

• Farming Operation Networking Project (FON – KRS 141.412)

A limited liability pass-through entity must file Schedules

KREDA-SP, KIDA-SP, KJRA-SP, KIRA-SP, KJDA-SP, KBI-SP, KRA-

SP, IEIA-SP, or FON-SP to compute the tax credits for these

programs.

To claim the STICA or MCC credit, a copy of the tax credit

certiﬁcation(s) received from Bluegrass State Skills Corporation

reﬂecting the amount of credit awarded must be attached to

the tax return. The credit for either the STICA or MCC must

be claimed on the tax return ﬁled for the taxable year during

which the ﬁnal authorizing resolution is adopted by Bluegrass

State Skills Corporation. The STICA credit not used during the

year in which the ﬁnal authorizing resolution is adopted by

Bluegrass State Skills Corporation may be carried forward three

successive years; the MCC credit not used during the year in

which the ﬁnal authorizing resolution is adopted by Bluegrass

State Skills Corporation may be carried forward to tax years

ending before April 15, 2027. If a STICA or MCC credit is being

carried forward from a prior year, attach a schedule reﬂecting

the original credit available, the amount of the credit used each

year, and the balance of the credit.

To claim the KSBTC credit, a copy of the tax credit notiﬁcation

received from Kentucky Economic Development Finance

Authority (KEDFA) reﬂecting the amount of credit awarded must

be attached to the tax return. The credit for the KSBTC must be

claimed on the tax return for the taxable year during which the

credit was approved by KEDFA. The tax credit not used during

the year of approval by KEDFA may be carried forward up to ﬁve

years. If a KSBTC credit is being carried forward from a prior

year, attach a schedule reﬂecting the original credit available,

the amount of the credit used each year, and the balance of

the credit.

Economic development tax credits are allowed against the taxes

imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401.

Information regarding the approval process for these credits

may be obtained from the Cabinet for Economic Development,

Department for Financial Incentives (telephone: 502–564–4554)

or Bluegrass State Skills Corporation (telephone: 502–564–2021).

Farming Operation Networking Tax Credit—A qualiﬁed farming

operation which has a farm operation networking project

approved by the Cabinet for Economic Development per KRS

141.410 to KRS 141.414 is allowed a credit against the taxes

imposed by KRS 141.040 or KRS 141.020 and KRS 141.0401

attributable to the project per KRS 141.412. The annual tax

credit is available for the ﬁrst ﬁve (5) years that the farming

operation is involved in the networking project. The annual tax

credit is equal to the approved costs incurred by the qualiﬁed

farming operation during the tax year and must not exceed the

income, Kentucky gross proﬁts, or Kentucky gross receipts of

the qualiﬁed farming operation generated by or arising out of

the qualiﬁed farming operation's participation in a networking

project. Schedule FON must be attached to the tax return

claiming the credit. KRS 141.412

Certiﬁed Rehabilitation Tax Credit—This credit is allowed only if

the taxpayer has been approved for the credit by the Kentucky

Heritage Council. Credit is allowed against the taxes imposed by

KRS 141.020 or KRS 141.040 and KRS 141.0401 or KRS 136.505 for

qualiﬁed rehabilitation expenses on certiﬁed historic structures.

KRS 171.3961 and KRS 171.397

Unemployment Tax Credit—If a taxpayer hired a Kentucky

resident classiﬁed as unemployed for at least 60 days and

the resident remains in the employ of the taxpayer for 180

consecutive days during the tax year (a qualiﬁed person), the

taxpayer may be entitled to the unemployment tax credit against

the taxes imposed by KRS 141.020 or KRS 141.040 and KRS

141.0401. For each qualiﬁed person, a one–time nonrefundable

credit of $100 may be claimed. The period of unemployment

must be certiﬁed by the Education and Workforce Development

Cabinet, Department of Workforce Investment, Office of

Employment and Training, Frankfort, KY, and a copy of the

certiﬁcation must be maintained by the taxpayer. For certiﬁcation

questions, call 502–564–7456. Schedule UTC must be attached

to the return claiming this credit. KRS 141.065

Recycling/Composting Tax Credit—A taxpayer, which purchases

recycling and/or composting equipment to be used exclusively

in Kentucky for recycling or composting post-consumer waste

materials, may be entitled to a nonrefundable credit against

the taxes imposed by KRS 141.020, KRS 141.040, and KRS

141.0401 in an amount equal to 50 percent of the installed cost

of the equipment. Application for this credit must be made on

Schedule RC and a copy of the schedule reﬂecting the amount of

credit approved by the Department of Revenue must be attached

to the tax return on which the credit is claimed. The amount of

this credit claimed for the tax year may not exceed 25 percent

of the tax liability and cannot exceed 10 percent of the credit

approved in the ﬁrst year of eligibility.

For taxable years beginning after December 31, 2004, a taxpayer

which purchases recycling and/or composting equipment to be

used exclusively in Kentucky for recycling or composting post–

consumer waste material that qualiﬁes as a Major Recycling

Project is entitled to a nonrefundable credit against the taxes

imposed by KRS 141.020, KRS 141.040, and KRS 141.0401.

The credit is an amount equal to 50 percent of the installed

cost of the recycling or composting equipment limited to: 50

percent of the excess of the total of each tax liability over the

baseline tax liability of the taxpayer or $2,500,000. To qualify,

the taxpayer must: (1) invest more than $10,000,000 in recycling

or composting equipment to be used exclusively in this state;

(2) have more than 750 full–time employees with an average

hourly wage of more than 300 percent of the federal minimum

wage; and (3) have plant and equipment with a total cost of

more than $500,000,000. Application for this credit must be

made on Schedule RC and a copy of the schedule reﬂecting the

Page 16 of 20

TAX CREDIT SUMMARY

765

(2018)

amount of credit approved by the Department of Revenue must

be attached to the tax return on which the credit is claimed. The

credit is limited to a period of 10 years commencing with the

approval of the recycling credit application.

A taxpayer is entitled to claim the recycling credits in KRS

141.390(2)(a) and (b), but cannot claim both for the same

recycling and/or composting equipment. KRS 141.390

Coal Conversion Tax Credit—A corporation which converts

boilers from other fuels to Kentucky coal or which substitutes

Kentucky coal for other fuels in a boiler capable of burning

coal and other fuels to produce energy for speciﬁc purposes

may be entitled to a credit against the taxes imposed by KRS

141.040 and KRS 141.0401 equal to 4.5 percent of expenditures

for Kentucky coal (less transportation costs). Unused portions

of this credit may not be carried forward or back. Schedule

CC must be attached to the tax return claiming this credit.

KRS 141.041

Kentucky Investment Fund Tax Credit—A taxpayer which

makes a cash contribution to an investment fund approved

by KEDFA per KRS 154.20–250 to KRS 154.20–284 is entitled

to a nonrefundable credit equal to 40 percent of the investor’s

proportional ownership share of all qualiﬁed investments made

by the investment fund and veriﬁed by the authority. The credit

may be applied against the taxes imposed by KRS 141.020

or 141.040, 141.0401, 136.320, 136.300, 136.310, 136.505, and

304.3–270. A copy of the notiﬁcation from KEDFA reﬂecting the

amount of credit granted and the year in which the credit may

ﬁrst be claimed must be attached to the tax return claiming

this credit.

The tax credit amount that may be claimed by an investor in

any tax year must not exceed 50 percent of the initial aggregate

credit amount approved by the authority for the investment

fund which is proportionally available to the investor. Example:

An investor with a 10 percent investment in a fund which has

been approved for a total credit to all investors of $400,000 is

limited to $20,000 maximum credit in any given year ($400,000

x 10% x 50%).

If the amount of credit that may be claimed in any tax year

exceeds the tax liabilities, the excess credit may be carried

forward, but the carryforward of any excess tax credit will not

increase the limitation that may be claimed in any tax year.

Any credit not used in 15 years, including the year in which

the credit may ﬁrst be claimed, will be lost.

Information regarding the approval process for these credits

may be obtained from the Cabinet for Economic Development,

Department of Financial Incentives at 502–564–4554. KRS

141.068

Qualiﬁed Research Facility Tax Credit—A taxpayer is entitled

to a credit against the taxes imposed by KRS 141.020 or KRS

141.040 and KRS 141.0401 of 5 percent of the qualiﬁed costs of

construction, remodeling, expanding, and equipping facilities

in Kentucky for “qualiﬁed research.” Any unused credit may

be carried forward 10 years. Schedule QR, Qualiﬁed Research

Facility Tax Credit, must be attached to the tax return on which

this credit is claimed. Federal Form 6765, Credit for Increasing

Research Activities, must also be attached if applicable. See

instructions for Schedule QR for more information regarding

this credit. KRS 141.395

GED Incentive Tax Credit—A taxpayer is entitled to a credit

against the taxes imposed by KRS 141.020 or KRS 141.040 and

KRS 141.0401. The credit reﬂected on this line must equal the

sum of the credits reﬂected on the attached GED-Incentive

Program Final Reports. This credit may be claimed only in

the year during which the learning contract was completed

and unused portions of the credit may not be carried forward

or back. For information regarding the program, contact the

Education and Workforce Development Cabinet, Kentucky

Adult Education, Council on Postsecondary Education at 502-

573-5114. The GED-Incentive Program Final Report (DAEL-31)

for each employee that completed a learning contract during

the tax year must be attached to the tax return claiming the

credit. KRS 164.0062

Voluntary Environmental Remediation Tax Credit—The

taxpayer must have an agreed order and be approved by

the Energy and Environment Cabinet per KRS 224.1-514.

Maximum tax credit allowed to be claimed per taxable year is

25 percent of the approved credit. This credit may be claimed

against the taxes imposed by KRS 141.020 or KRS 141.040

and KRS 141.0401. For more information regarding credit for

voluntary environmental remediation property, contact the

Energy and Environment Cabinet at 502–564–6716. Schedule

VERB must be attached to the tax return claiming this credit.

KRS 141.418

Biodiesel Tax Credit—Producers and blenders of biodiesel

and producers of renewable diesel are entitled to a tax credit

against the taxes imposed by KRS 141.020 or KRS 141.040 and

KRS 141.0401. The taxpayer must ﬁle a claim for biodiesel

credit with the Department of Revenue by January 15 each year

for biodiesel produced or blended and the renewable diesel

produced in the previous calendar year. The department will

issue a credit certiﬁcation (Schedule BIO) to the taxpayer by

April 15. The credit certiﬁcation must be attached to the tax

return claiming this credit. KRS 141.423 and 103 KAR 15:140

Clean Coal Incentive Tax Credit—Effective for tax years

ending on or after December 31, 2006, a nonrefundable,

nontransferable credit against the taxes imposed by KRS

136.120, KRS 141.020, or KRS 141.040 and KRS 141.0401 will

be allowed for a clean coal facility. Per KRS 141.428, a clean

coal facility means an electric generation facility beginning

commercial operation on or after January 1, 2005, at a cost

greater than $150 million that is located in the Commonwealth

of Kentucky and is certiﬁed by the Energy and Environment

Cabinet as reducing emissions of pollutants released during

generation of electricity through the use of clean coal

equipment and technologies. The amount of the credit is $2

per ton of eligible coal purchased that is used to generate

electric power at a certiﬁed clean coal facility, except that

no credit will be allowed if the eligible coal has been used to

generate a credit under KRS 141.0405 for the taxpayer, parent,

or subsidiary. KRS 141.428

Ethanol Tax Credit—Producers of ethanol are entitled to a

tax credit against the taxes imposed by KRS 141.020 or KRS

141.040 and KRS 141.0401. The taxpayer must ﬁle a claim for

ethanol credit with the Department of Revenue by January 15

each year for ethanol produced in the previous calendar year.

The department will issue a credit certiﬁcation (Schedule ETH)

to the taxpayer by April 15. The credit certiﬁcation must be

attached to the tax return claiming this credit. KRS 141.4242

and 103 KAR 15:110

Cellulosic Ethanol Tax Credit—Producers of cellulosic ethanol

are entitled to a tax credit against the taxes imposed by KRS

141.020 or KRS 141.040 and KRS 141.0401. The taxpayer

must file a claim for ethanol credit with the Department

Page 17 of 20

TAX CREDIT SUMMARY

765

(2018)

of Revenue by January 15 each year for cellulosic ethanol

produced in the previous calendar year. The department will

issue a credit certiﬁcation (Schedule CELL) to the taxpayer by

April 15. The credit certiﬁcation must be attached to the tax

return claiming this credit. KRS 141.4244 and 103 KAR 15:120

Railroad Maintenance and Improvement Tax Credit—For tax

years beginning on or after January 1, 2010, an owner of any

Class II railroad or Class III railroad located in Kentucky or

any person who transports property using the rail facilities

of a Class II railroad or Class III railroad located in Kentucky

or furnishes railroad-related property or services to a Class

II railroad or Class III railroad located in Kentucky, but only

with respect to miles of railroad track assigned to the person

by a Class II railroad or Class III railroad, is entitled to a

nonrefundable credit against taxes imposed by KRS 141.020

or KRS 141.040 and KRS 141.0401 in an amount equal to ﬁfty

percent (50%) of the qualiﬁed expenditures paid or incurred to

maintain or improve railroads located in Kentucky, including

roadbeds, bridges, and related structures, that are owned or

leased as of January 1, 2008, by a Class II or Class III railroad.

The credit allowed must not exceed the product of $3,500

multiplied by the sum of: (1) The number of miles of railroad

track in Kentucky owned or leased by the eligible taxpayer

as of the close of the taxable year; and (2) The number of

miles of railroad track in Kentucky assigned to the eligible

taxpayer by a Class II railroad or Class III railroad which owns

or leases the railroad track as of the close of the taxable year.

Attach Schedule RR-I to the return when claiming the credit.

KRS 141.385

Railroad Expansion Tax Credit—For tax years beginning on or

after January 1, 2010: (a) a corporation that owns fossil energy

resources subject to tax under KRS 143.020 or KRS 143A.020

or biomass resources and transports these resources using

rail facilities; or (b) a railway company subject to tax under

KRS 136.120 that serves a corporation that owns fossil energy

resources subject to tax under KRS 143.020 or KRS 143A.020

or biomass resources is entitled to a nonrefundable tax credit

against taxes imposed under KRS 141.040 and KRS 141.0401

equal to twenty-ﬁve percent (25%) of the expenditures paid

or incurred by the corporation or railway company to expand

or upgrade railroad track, including roadbeds, bridges, and

related track structures, to accommodate the transport of fossil

energy resources or biomass resources.

The credit amount approved for a calendar year for all taxpayers

under KRS 141.386 is limited to $1 million. If the total amount

of approved credit exceeds $1 million, the department will

determine the amount of credit each corporation and railroad

company receives by multiplying $1 million by a fraction, the

numerator of which is the amount of approved credit for a

corporation or railway company and the denominator of which

is the total approved credit for all corporations and railway

companies.

Each corporation or railway company eligible for the credit

must file Schedule RR-E by the fifteenth day of the first

month following the close of the preceding calendar year. The

department will determine the amount of the approved credit

and issue a credit certiﬁcate to the corporation or railway

company by the ﬁfteenth day of the third month following the

close of the calendar year. KRS 141.386

ENDOW Kentucky Tax Credit—A taxpayer making an

endowment gift to a permanent endowment fund of a qualiﬁed

community foundation, county-specific component fund,

or afﬁliate community foundation, which has been certiﬁed

under KRS 147A.325, is entitled to a tax credit equal to twenty

percent (20%) of the endowment gift, not to exceed $10,000.

The nonrefundable tax credit is allowed against the taxes

imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401 and

if not used in the year the tax credit is awarded, may be carried

forward for a period not to exceed ﬁve years. The department

will issue a credit certiﬁcation (Schedule ENDOW) to a taxpayer

upon receiving proof that the endowment gift was made to the

approved community foundation per KRS 141.438(7). Schedule

ENDOW must be attached to the taxpayer’s tax return each

year to claim the credit. A partner, member, or shareholder

of a pass-through entity must attach a copy of Schedule K-1,

Form 720S, 765, or 765-GP to the partner’s, member’s, or

shareholder’s tax return each year to claim the tax credit. KRS

141.438 and 103 KAR 15:195

New Markets Development Program Tax Credit—A taxpayer

that makes a qualiﬁed equity investment per KRS 141.432(7)

in a qualiﬁed community development entity deﬁned by KRS

141.432(6) is entitled to a nonrefundable tax credit against

the taxes imposed by KRS 141.020, 141.040, 141.0401, 136.320,

136.330, 136.340, 136.350, 137.370, 136.390, or 304.3-270.

The total amount of tax credits that may be awarded by

the department is limited to $10 million. “Qualified low-

income community investment” means any capital or equity

investment in, or loan to, any qualiﬁed active low-income

community business made after June 4, 2010. With respect to

any one qualiﬁed active low-income community business, the

maximum amount of qualiﬁed active low-income community

investments that may be made in the business, on a collective

basis with all of its afﬁliates, with the proceeds of qualiﬁed

equity investments that have been certiﬁed under KRS 141.433

is $10 million, whether made by one or several qualiﬁed

community development entities.

The amount of the credit will be equal to 39% of the purchase

price of the qualiﬁed equity investment made by the taxpayer.

A taxpayer is allowed to claim zero percent (0%) for each of

the ﬁrst two credit allowance dates, seven percent (7%) for the

third allowance date, and eight percent (8%) for the next four

allowance dates. “Credit allowance date” means with respect

to any qualiﬁed equity investment: (a) the date on which the

investment is initially made; and (b) each of the six anniversary

dates of that date thereafter. KRS 141.432 to KRS 141.434

Food Donation Tax Credit—For taxable years beginning on or

after January 1, 2018, the tax credit was repealed. 2018 is the

ﬁnal year in which any unused prior year credit carryforward

may be utilized. See Schedule TCS, Part II, line 18 to claim this

credit. KRS 141.392

Film Industry Tax Credit—For applications approved on or

after April 27, 2018, a nonrefundable and nontransferable credit

against the taxes imposed by KRS 141.020 or KRS 141.040 and

KRS 141.0401 is available for taxpayers who have received

notiﬁcation from the ﬁlm ofﬁce that the approved company

has satisﬁed all requirements of KRS 148.542 to KRS 148.546.

KRS 141.383

Page 18 of 20

TAX CREDIT SUMMARY

765

(2018)

Inventory Tax Credit—For taxable years beginning on or after

January 1, 2018, a nonrefundable and nontransferable tax

credit is allowed against the taxes imposed by KRS 141.020

or KRS 141.040 and KRS 141.0401 for ad valorem (property)

taxes timely paid on inventory. This credit is phased in as

follows: 25% in 2018; 50% in 2019; 75% in 2020; 100% in 2021

and thereafter. KRS 141.408

Distilled Spirits Tax Credit—For taxable years beginning on

or after January 1, 2015, a nonrefundable and nontransferable

credit against the tax imposed by KRS 141.020 or KRS 141.040

and KRS 141.0401 is available to taxpayers who pay Kentucky

property tax on distilled spirits.

The distilled spirits credit is equal to: 80 percent of the property

tax assessed and timely paid for taxable years beginning on

or after January 1, 2018 and 100 percent of the property tax

assessed and timely paid for taxable years beginning on or

after January 1, 2019.

The amount of the credit is contingent on the costs associated

with the following capital improvements at the premises of

the distiller: construction, replacement, or remodeling of

warehouses or facilities; purchases of barrels and pallets

used for the storage and aging of distilled spirits in maturing

warehouses; acquisition, construction, or installation of

equipment for the use in the manufacture, bottling, or

shipment of distilled spirits; addition or replacement of access

roads or parking facilities; and construction, replacement, or

remodeling of facilities to market or promote tourism, including

but not limited to a visitor’s center. KRS 141.389

Page 19 of 20

GENERAL INFORMATION

765

(2018)

Kentucky Department of Revenue

Mission Statement

As part of the Finance and Administration Cabinet, the mission

of the Kentucky Department of Revenue is to administer tax

laws, collect revenue, and provide services in a fair, courteous,

and efﬁcient manner for the beneﬁt of the Commonwealth

and its citizens.

* * * * * * * * * * * * *

The Kentucky Department of Revenue does not discriminate

on the basis of race, color, national origin, sex, age, religion,

disability, sexual orientation, gender identity, veteran status,

genetic information, or ancestry in employment or the

provision of services.

TANGIBLE PERSONAL PROPERTY TAXES—The listing

period for tangible personal property is January 1 through

May 15 of each year. Each taxpayer is responsible for report-

ing his tangible personalty subject to ad valorem taxation.

The Tangible Personal Property Tax Return, Revenue Form

62A500, and instructions can be obtained from your local

county property valuation administrator’s ofﬁce or the

Ofﬁce of Property Valuation. You may also go to www.

revenue.ky.gov to download these forms. A separate form

must be ﬁled for each location in Kentucky where you have

tangible personal property.

KENTUCKY TAXPAYER SERVICE CENTERS

Information and forms are available from Kentucky Taxpayer

Service Centers in the following cities.

Ashland, 1539 Greenup Avenue, 41101-7695

606–920–2037

Bowling Green, 201 West Professional Park Court, 42104-3278

270–746–7470

Corbin, 15100 North US 25E, Suite 2, 40701-6188

606–528–3322

Frankfort, 501 High Street, 40601–2103

502–564–4581 (Taxpayer Assistance)

Hopkinsville, 181 Hammond Drive, 42240-7926

270–889–6521

Louisville, 600 West Cedar Street

Floor West, 40202-2310

502–595–4512

Northern Kentucky, Turfway Ridge Ofﬁce Park

7310 Turfway Road, Suite 190

Florence, 41042-4871

859–371–9049

Owensboro, Corporate Center

401 Frederica Street, Building C, Suite 201, 42301-6295

270–687–7301

Paducah, Clark Business Complex, Suite G

2928 Park Avenue, 42001-4024

270–575–7148

Pikeville, Uniplex Center, Suite 203

126 Trivette Drive, 41501-1275

606–433–7675

TAXPAYER ASSISTANCE

Forms:

Operations and Support Services Branches

P. O. Box 518

Frankfort, KY 40602–0518

502–564–3658

Website: www.revenue.ky.gov

Email: Financerevenueformsandenvelopes@ky.gov

Information:

Pass-Through Entity Branch

Department of Revenue

501 High Street, Station 52

Frankfort, KY 40601–2103

502–564–8139

Mailing/Payment:

Mail the return to:

Kentucky Department of Revenue, P. O. Box 856910, Louisville,

KY 40285-6910. Make the check payable to Kentucky State

Treasurer.

Mail returns with no tax due or refund requests to:

Kentucky Department of Revenue, P. O. Box 856905, Louisville,

KY 40285-6905.

Kentucky State Treasury—Unclaimed Property

Individuals

The Kentucky State Treasury may be holding unclaimed

property for you or your family. The Treasury holds

hundreds of millions of dollars from bank accounts, payroll

checks, life insurance, utility deposits, and other types of

property that have been unclaimed by the owners. Please

visit www.treasury.ky.gov or www.missingmoney.com for

more information on how to locate and claim any funds

that may belong to you.

Businesses

Kentucky businesses are required to comply with the

Kentucky Revised Uniform Unclaimed Property Act,

codiﬁed as KRS Chapter 393A. If you have uncashed vendor

checks, payroll checks, unclaimed customer deposits or

refunds, or other types of property belonging to third-

parties, you may be required to turn the property over to

the Kentucky State Treasury. Please review KRS Chapter

393A, or visit www.treasury.ky.gov for more information.

Page 20 of 20

INSTRUCTIONS

765

(2018)

This page has been intentionally left blank.

YOUR RIGHTS

AS A KENTUCKY TAXPAYER

As part of the Finance and Administration Cabinet, the

mission of the Kentucky Department of Revenue (DOR) is to

administer tax laws, collect revenue, and provide services in

a fair, courteous, and efﬁcient manner for the beneﬁt of the

Commonwealth and its citizens.

As a Kentucky taxpayer, you have the right to expect the DOR

to honor its mission and uphold your rights every time you

contact or are contacted by the DOR.

Some Kentucky taxpayer rights are very speciﬁc, such as

when and how to protest a Notice of Tax Due or the denial of

a refund. Others are more general.

The following is a summary of your rights and the DOR’s

responsibilities to you as a Kentucky taxpayer.

RIGHTS OF TAXPAYER

Privacy

You have the right to privacy with regard to information you

provide pertaining to returns, reports, or the affairs of your

business.

Assistance

You have the right to advice and assistance from the DOR in

complying with state tax laws.

Explanation

You have the right to a clear and concise explanation of:

9 basis of assessment of additional taxes, interest and

penalties, or the denial or reduction of any refund or credit

claim;

9 procedure for protest and appeal of a Notice of Tax Due,

a reduction or denial of a refund, or a denial of a request

for additional time to ﬁle a supporting statement; and

9 tax laws and changes in tax laws so that you can comply

with the law.

Protest and Appeal

You have the right to ﬁle a protest with the DOR if you disagree

with a Notice of Tax Due, a reduction or denial of a refund, or

a denial of a request for additional time to ﬁle a supporting

statement. If you ﬁle a timely protest, you have a right to a

conference to discuss the matter. If you are not satisﬁed with

the Department’s ﬁnal ruling following your protest, you may

appeal the ﬁnal ruling to the Kentucky Claims Commission, Tax

Appeals pursuant to KRS 131.110(5) and KRS 49.220 et. seq.

(See reverse for procedure to ﬁle a protest.)

Representation

You have the right to representation by your authorized agent

(attorney, accountant, or other person) in any hearing or

conference with the DOR. You have the right to be informed

of this right prior to the conference or hearing. If you intend

for your representative to attend the conference or hearing in

your place, you will be required to give your representative

a power of attorney before the DOR can discuss tax matters

with your authorized agent. See Form 20A100.

Recordings

You have the right to make an audio recording of any meeting,

conference, or hearing with the DOR. The DOR has the right

to make an audio recording, if you are notiﬁed in writing in

advance or if you make a recording. You have the right to

receive a copy of the recording.

Consideration

You have the right to consideration of:

9 waiver of penalties or collection fees if “reasonable cause”

for reduction or waiver is given (“reasonable cause” is

deﬁned in KRS 131.010(9) as: “an event, happening, or

circumstance entirely beyond the knowledge or control of

a taxpayer who has exercised due care and prudence in

the ﬁling of a return or report or the payment of monies

due the department pursuant to law or administrative

regulation”);

9 installment payments of delinquent taxes, interest, and

penalties;

9 waiver of interest and penalties, but not taxes, resulting

from incorrect written advice from the DOR if all facts

were given and the law did not change or the courts did

not issue a ruling to the contrary;

9 extension of time for ﬁling reports or returns; and

9 payment of charges incurred resulting from an erroneous

ﬁling of a lien or levy by the DOR.

Guarantee

You have the right to a guarantee that DOR employees are

not paid, evaluated, or promoted based on taxes assessed

or collected, or a tax assessment or collection quota or goal

imposed or suggested.

Damages

You have the right to ﬁle a claim for actual and direct monetary

damages with the Kentucky Claims Commission if a DOR

employee willfully, recklessly, and intentionally disregards

your rights as a Kentucky taxpayer.

Interest

You may have the right to receive interest on an overpayment

of tax.

DEPARTMENT OF REVENUE RESPONSIBILITIES

The DOR has the responsibility to:

9 perform audits and conduct conferences and hearings

with you at reasonable times and places;

9 authorize, require, or conduct an investigation or

surveillance of you only if it relates to a tax matter;

9 make a written request for payment of delinquent taxes

which are due and payable at least 30 days prior to seizure

and sale of your assets;

9 conduct educational and informational programs to help

you understand and comply with the laws;

9 publish clear and simple statements to explain tax

procedures, remedies, your rights and obligations, and

the rights and obligations of the DOR;

9 notify you in writing when an erroneous lien or levy is

released and, if requested, notify major credit reporting

companies in counties where lien was ﬁled;

JULY 2018

9 advise you of procedures, remedies, and your rights and

obligations with an original notice of audit or when an

original Notice of Tax Due is issued, a refund or credit

is denied or reduced, or whenever a license or permit is

denied, revoked, or canceled;

9 notify you in writing prior to termination or modiﬁcation

of a payment agreement;

9 furnish copies of the agent’s audit workpapers and a written

narrative explaining the reason(s) for the assessment;

9 resolve tax controversies on a fair and equitable basis at

the administrative level whenever possible;

9 notify you in writing at your last known address at least 60

days prior to publishing your name on a list of delinquent

taxpayers for which a tax or judgment lien has been ﬁled;

and

9 notify you by certiﬁed mail 20 days prior to submitting

your name to the relevant agency for the revocation or

denial of professional license, driver’s license, or motor

vehicle registration.

PROTEST AND APPEAL PROCEDURE

Protest

If you receive a Notice of Tax Due, or if the DOR notiﬁes you

that a tax refund has been reduced or denied, or the DOR

denies your request for additional time to ﬁle a supporting

statement, you have the right to protest. To do so:

9 submit a written protest within 60 days from the original

notice date (or 45 days if the original notice date is prior

to 07/01/2018); notice of refund reduction or denial, or

denial of a request for additional time to ﬁle a supporting

statement;

9 identify the type of tax involved and give the account

number, Social Security number, or other identiﬁcation

number and attach a copy of the DOR Notice of Tax Due

or refund denial to support that your protest is timely;

9 explain why you disagree;

9 attach any proof or documentation available to support

your protest or request additional time to support your

protest;

9 sign your statement, include your daytime telephone

number and mailing address; and

9 mail to the Kentucky Department of Revenue,

Frankfort, Kentucky 40620.

Conference

You have the right to request a conference to discuss the issue.

Final Ruling

If you do not want to have a conference or if the conference

did not resolve your protest, you have the right to request a

ﬁnal ruling of the DOR so that you can appeal your case further.

Appeal

If you do not agree with the DOR’s ﬁnal ruling, you can ﬁle

a written appeal with the Kentucky Claims Commission. If

you do not agree with the decision of the Kentucky Claims

Commission, you have the right to appeal their ruling to the

Kentucky courts (ﬁrst to the circuit court in your home county

or in Franklin County, then to the Kentucky Court of Appeals,

and ﬁnally to the Kentucky Supreme Court).

NOTE: The above protest and appeal procedures do not apply

for real property which is valued by the local property valuation

administrator (PVA). Contact the local PVA for information

about how to appeal the valuation of real property.

TAXPAYER OMBUDSMAN

The DOR has a Taxpayer Ombudsman whose job is to serve as

an advocate for taxpayers’ rights. One of the main functions

of the Ombudsman is to ensure that your rights as a Kentucky

taxpayer are protected.

Also, an important function of the Taxpayer Ombudsman is

to confer with DOR employees when you have a problem

or conﬂict that you have been unable to resolve. However,

it is not the role of the Ombudsman to intercede in an audit,

handle a protest, waive taxes, penalty or interest, or answer

technical tax questions. To ﬁle a protest, see PROTEST AND

APPEAL PROCEDURE. Please do not mail your protest to the

Ombudsman.

The Taxpayer Ombudsman is your advocate and is there to

make sure your rights are protected. If you think you are not

being treated fairly or if you have a problem or complaint,

please contact the Ombudsman for assistance.

The Taxpayer Ombudsman may be contacted by telephone at

502–564–7822 (between 8:00 a.m. and 5:00 p.m. weekdays).

The mailing address is: Department of Revenue, Taxpayer

Ombudsman, P. O. Box 930, Frankfort, Kentucky 40602-0930.

WHERE TO GET ASSISTANCE

The DOR has ofﬁces in Frankfort and taxpayer service centers

in nine cities and towns throughout Kentucky. DOR employees

in the service centers answer tax questions and provide

assistance. You may obtain assistance by contacting any of

the following:

Ashland Taxpayer Service Center

1539 Greenup Avenue, 41101–7695

606–920–2037

Bowling Green Taxpayer Service Center

201 West Professional Park Court, 42104–3278

270–746–7470

Corbin Taxpayer Service Center

15100 North US25E, Suite 2, 40701–6188

606–528–3322

Frankfort Taxpayer Service Center

501 High Street, 40601–2103

502–564–4581 (Taxpayer Assistance)

Hopkinsville Taxpayer Service Center

181 Hammond Drive, 42240–7926

270–889–6521

Louisville Taxpayer Service Center

600 West Cedar Street, 2nd Floor West, 40202–2310

502–595–4512

Northern Kentucky Taxpayer Service Center

Turfway Ridge Ofﬁce Park

7310 Turfway Road, Suite 190

Florence 41042–4871

859–371–9049

Owensboro Taxpayer Service Center

401 Frederica Street, Building C, Suite 201, 42301–6295

270–687–7301

Paducah Taxpayer Service Center

Clark Business Complex, Suite G

2928 Park Avenue, 42001–4024

270–575–7148

Pikeville Taxpayer Service Center

Uniplex Center, 126 Trivette Drive, Suite 203, 41501–1275

606–433–7675

* * * * * * * * * *

The DOR has an online taxpayer service center where you can

download forms, publications, and obtain general information

about the department. The address is www.revenue.ky.gov.

The information in this brochure merely summarizes your

rights as a Kentucky taxpayer and the responsibilities of the

Department of Revenue. The Kentucky Taxpayers’ Bill of Rights

may be found in the Kentucky Revised Statutes (KRS) at

Chapter 131.041-131.083. Additional rights and responsibilities

are provided for in KRS 131.020, 131.110, 131.170, 131.1817,

131.183, 131.190, 131.500, 131.654, 133.120, 133.130, 134.580,

and 134.590.

Printing costs paid from state funds.

Commonwealth of Kentucky

DEPARTMENT OF REVENUE

10F100 (7-18)

The Kentucky Department of Revenue does not discriminate

on the basis of race, color, national origin, sex, age, religion,

disability, sexual orientation, gender identity, veteran status,

genetic information or ancestry in employment or the provision

of services.